The costs that make up household energy bills

Illustration based on information from SSE's Consolidated Segmental Statements published from 2010-2014 which are available on our website.Average costs per energy bill weighted to reflect our customer based (59% electricity, 41% gas).Costs will vary depending on fuel(s), region and tariff.

We'd like you to understand how the cost of an energy bill is made up. The chart shows you the costs involved in supplying electricity and gas, including the profit we earn doing so. The figures are based on an average of SSE's figures for the last four financial years ending March 2013.

Please note: If you have a Green Deal agreement in place, any prices or discounts quoted do not include your Green Deal payments.

The cost of buying the energy our customers use

We have to secure the energy our customers need ahead of time by buying it in competitive and volatile global markets, sometimes up to two years in advance.

The wholesale price of gas and electricity fluctuates throughout the year and we try to purchase at the best time to help keep our prices as low as possible. We also have gas storage facilities which enable us to purchase when the price is lower which again helps us keep prices down.

On top of wholesale prices there are additional costs involved in buying gas and electricity.

Because electricity is generated in different places spread across the country and the supply in these areas doesn’t always exactly match the demand, there is a need to move electricity around the electricity distribution network in order to ensure every home has a supply when needed. The job of balancing supply with demand is carried out by National Grid and they have to recover their costs from suppliers. This is known as the Balancing Services Use of System (BSUoS).

Each year the industry as a whole estimates the total amount of gas which its customers are likely to use for the year ahead. At the year end there needs to be reconciliation between this and the extra amount of gas that is actually used. The difference is then spread across the supply companies based on their market share so that it can be recovered. This is known as Reconciliation by Difference (RbD).

Delivering the energy to your home

As an energy supplier, we have to pay to transport energy along wires, cables and pipes to where it's needed.

This reflects the charges made by the operators of the regional distribution network and the national transmission system. The revenues taken by the transmission and distribution companies are controlled via a regulatory formula managed by the industry regulator, Ofgem.

The cost of government environmental and social schemes

These are initiatives like energy efficiency programmes, support for low carbon energy and help for vulnerable customers. While we support the aims of these initiatives they do come with a cost.

The schemes we need to provide include:

Giving a discount on energy bills to our most vulnerable customers to help them keep warm and comfortable in their homes. This includes the Warm Home Discount scheme.

Encouraging the development of more small scale, low carbon electricity generation and taking a big step towards helping the environment. An example of this is fitting solar panels to your roof to generate electricity which you can then use in your own home. Suppliers will pay a tax free price per kWh to a homeowner who produces their own electricity from renewable energy sources. This is in addition to the free electricity they generate for their own use and the payment they will receive for any surplus electricity which they have generated, but don't use, and sell back to us. This is known as a feed in tariff (FiT) and is backed by the UK Government to encourage the growth of renewable energy.

As a Green Deal provider, helping our customers install energy efficient measures to make their homes warmer and reduce their bills, with no large, upfront costs.

We, along with other suppliers, are required to obtain a certain percentage of the electricity we sell to our customers from renewable energy sources, like wind, biomass, tidal power and hydro. As the UK’s leading generator of renewable energy we are in a good position to do this. However, in order to ensure we meet Government requirements we do need to buy some electricity from people who produce this. We do this under Renewable Obligation Certificates (ROCs).

Within the EU there are strict targets on green house gas emissions which must be met; these targets cover electricity generation and other industries which have high energy usage needs. This is controlled by the European Union Emissions Trading Scheme (EU ETS) and we have included the estimated impact of this on buying electricity in this section.

The EU ETS impacts the cost of the electricity we buy for your use, as the electricity generation companies must meet targets and the costs of meeting these targets influence the wholesale price.

Looking after you which includes billing, customer service and our IT systems

This includes our costs such as billing, customer service and IT systems.

While we continue to keep costs low and strive for efficiency, it is equally important that customer services are properly funded.

VAT

The gas and electricity you use is subject to Value Added Tax.

This is set at 5% by the government, and is standard across all suppliers.

Our supply business profit

Profit from energy supply helps us to invest in modernising the energy system in the UK, pay tax, employ thousands of people and give a fair return to our group shareholders.

This section shows you the amount of profit we make on the price you pay.